Broadridge Financial Solutions Inc (BR) 2007 Q3 法說會逐字稿

At this time, I would like to welcome everyone to the Broadridge Financial Solutions Incorporated third quarter 2007 earnings conference call. I would like to inform you that this conference is being recorded, and all lines have been placed on mute to prevent any background noise. (OPERATOR INSTRUCTIONS) Thank you. I will now turn the conference over to Marvin Sims, Vice President of Investor Relations. Please go ahead, sir.

Thank you. Good morning, everyone. I'm Marvin Sims, Vice President of Investor Relations for Broadridge. I'm here this morning with Rich Daly, the Chief Executive Officer for Broadridge; and Dan Sheldon, the Chief Financial Officer for Broadridge. Our slide presentation accompanies today's earnings call and webcast, and is available for you to print from the Investor Relations homepage of our website at Broadridge.Com.

During today's conference call, we will discuss some forward-looking statements that involve risks and these risks are discussed here on the slide and in our periodic filings with the SEC. At the end of the presentation, there will be a Q&A session and with that introduction, I'll now turn the call over to Rich for his opening remarks. Rich?

Thanks, Marvin. Good morning, everyone. I'll start today's call with some opening remarks about our third quarter results. After my initial remarks, I'll then turn it over to Dan Sheldon, our CFO who will review with you the results in more detail as well as walk you through our fiscal '07 financial guidance. After Dan, I'll come back at the end with an update on some key topics and my summary before we head into the Q&A part of the call.

Let me start off by saying I'm pleased with our Q3 results and that they were in line with our expectations. We had had a solid quarter with revenue growth of 9.4% coming from strong internal growth both recurring and non-recurring. We were able to drive margin expansion by 180 basis points through the leveraging of the inherent scale in our businesses. The 9.4% growth for the third quarter follows the first quarter and second quarter growth percentages of 17% and 11% respectively. This is in line with the expectations we previously discussed with you since we are seeing our market driven growth trending down each quarter and leveling off in the single digits as we expected. Therefore, as we move into our fourth quarter there are no surprises. I would just like to point out that the fourth quarter, which is driven by proxy season volumes, is our biggest quarter of the fiscal year for both revenues and profits. Let me try to put this in perspective. Our anticipated Q4 '07 revenue is approximately 35% of our total revenue for the year. Our anticipated Q4 pre-tax profits are almost 50% of our total pre-tax profit for the year. Again, all these factors were Incorporated into the fiscal 2007 financial guidance that we shared during our recent road show in late March of this year and we are on track with that guidance.

At the time of the spinoff we also provided a directional view for fiscal '08. Providing a view of fiscal '08 is something we would not normally do this early; however because of the unusual circumstances related to the spinoff and the material negative impact of losing two large clients, we provided this unique, early directional view during the March road show. Right now, we are currently in the middle of our normal fiscal '08 operating plan process. We are also now halfway through our fourth quarter and we have a better view into the proxy season to help with the fiscal '08 operating plan process. With all of this being said, there is no change in our original directional view of fiscal '08 at this time.

With that final comment, we can move to the next slide. I will now turn it over to Dan who will walk you through the financial results and then through the financial guidance. Dan?

Thanks, Rich. By the way we're on Page Three. As Rich mentioned this was a good quarter. Revenues increased 9.4% to $493 million. 9 points came from internal growth of which 6 points were derived from the non-recurring activities. We have a small tuck in acquisition in our fulfillment operations which rounded out the additional 0.4 percentage growth.

Before we go into the rest of the presentation, I'd like to reacquaint you with our two definitions of internal growth which I think will help you understand our business. Recurring high probability that revenue will reoccur annually and represents about 80% of our revenue. Non-recurring is basically at the direction or discretion of our clients and usually involves a triggering event. Example of that would be as we've shown, mutual funds, proxy due to a proposed change in directors, proxy contests, mergers, and corporate actions kind of tender offered. Over the last few years, and now into FY '07 we have seen the non-recurring product stats growing. It's very good revenue and we like it, but it's just very difficult to estimate the likelihood it will continue to grow or be maintained year-over-year.

With respect to our pre-tax margins, 14.2% as Rich mentioned, up 180 basis points from last year. You should be thinking about 100 basis points are from the scale in the business and product mix and the other 80 basis points comes from increased distribution fee margins which I'll talk a little bit more on when I get to the investor communications section. Diluted earnings per share from continuing operations increased 25% to $0.30 from $0.24 on the same shares outstanding. Let's move to page four.

There's some noteworthy items in Q3 I'd like to bring to your attention. First, as we're all aware, the tax-free spinoff from ADP was completed on March 30. The second point, we paid a dividend to ADP of $690 million, and therefore have additional debt on our books for the same. With respect to that 690, we have 440 million in the form of a five year term loan with an interest rate at LIBOR plus 50, and we're currently at 5.84 percentage points. And we have also a 250 million, 364 day interim facility with an interest rate currently at 5.1%. We also have, in addition to that 690 million, 500 million in an unsecured but committed revolver. The third point is we also changed our transfer pricing between segments, which again had no impact to our consolidated results; however, there is impact to our segment, but when I review these segments with you, I have already pro forma'd the adjusted FY '06 revenue and pre-tax profit for the change so that you can see in the presentation the appropriate point to point analysis between FY '07 and FY 06. Again, these are in the press release, and included in the appendix. So what I bring to your attention is the reason we did this is in the past, you always saw us where we had in other, about 16 to $17 million worth of revenue we deducted out of other and that to us was confusing and really didn't represent how we wanted to look at the businesses with ourselves or with you so therefore, that's why we made that change, so that now when you add up our segments, you basically get to our total revenue and the only thing impacting us from Other is FX.

Moving on to the final point, finally, the two large client losses we identified in the Form 10, have indeed left and within the time frames we expected when we put together our guidance. The ICS client with annualized revenues of 44 million and operating profits of 11 million left us in February, at the end of February. For our securities processing and our clearing outsourcing clients with annualized revenues of 39 million and operating profits of 27 million, basically deconverted as of last weekend; however because of commitments we have with them, et cetera, 100% of that revenue will basically be lost next year, no part really to this year. Let's move on to age five and start talking about our segment.

For investor communications solutions, revenues increased 10% to $338 million for the quarter, basically up $30 million. You can see that all the growth is coming from primarily the existing client base, and it's mainly non-recurring. As we said before, it's good revenue, just very subjective as to how much of it will continue into future quarters or next year. With respect to operating profits for this segment, we're at 9.2%, up 210 basis points. 70 of those basis points are due to the scale and the business and product mix while the other 140 basis points is due to distribution fee improvement year-over-year. At this point let me dive a little bit deeper into the distribution revenues.

They represent approximately 50% of our total revenues in this segment and we make margins of approximately 10% on the efficiencies we generate in sorting and the means of distribution. Let's move on to the next page. Page six.

This is our Securities Processing Solutions segment, revenues increased by 7.2% to $131 million. Internal growth from market driven activity for both equity and fixed income contributed just over 5 points. The market has definitely been in our favor these last few quarters as we usually see about 2 points of contribution in normal markets, and this quarter, we basically have seen 5 points. With respect to net new business, we added approximately 2 points, and primarily in our fixed income business. Sales represented 3 points and losses a negative 1 point, bringing us back to the 2 points for the quarter. Operating profits of 32.3% are up 60 basis points primarily driven by the contributions from the additional internal growth.

Turning to page seven, Clearing and Outsourcing Solutions segment. Our revenues increased by 12.6% to $23 million or up $2.6 million. Net new business added 12 points. Sales bringing in 13, a loss reducing it by 1 point. The contribution from sales of 13 points is evenly distributed between both the Clearing and Outsourcing product. Our internal growth made up another almost 1 percentage point. With respect to operating losses, they've improved 1.1 million from a negative 2.2 million loss in the third quarter in FY '06 to just over 1 million in FY '07. We're very pleased with the revenue growth primarily coming from our new business here and scalability of the business.

Moving on to page eight. Our year-to-date nine month results. Revenues increased 12.3% from 1.2 billion to 1.36 billion, and the building block drivers behind this, internal growth contributed 10 points, again 6 points coming from the non-recurring, sales contributed 4 points, losses reduced the growth by 2 points, and acquisitions contributed about 0.5 a point. With respect to our pre-tax margins of 11.9% up 90 basis points, almost all of the increase is due to the scale in the businesses and the product mix as the distribution fee revenues and basically margins when you look on a year-to-date basis are at 9% for both years. Diluted earnings per share from continuing ops increased 22.4% to $0.71 from $0.58 on the same shares outstanding. We're very happy with the 12% year-to-date growth but this growth has been, as Rich mentioned shrinking each quarter but in line with our expectations given our seasonality. Again, Q1 was 17%, Q2 was 11%, and Q3 9%. So let's move to the next two pages to understand our Q4 forecast as well as our full year.

We're on page nine. With respect to our revenues, for Q4, we're forecasting between a negative 1.5% and a positive 2.5% for the quarter and why is that given what we've just seen over the last three quarters? Annual proxies which represent 45% of our Q4 revenues have been flat year-over-year. As discussed in the beginning of the presentation, our two large client losses impact us negatively by 3 points of revenue growth in the fourth quarter. As I mentioned this is primarily all in our ICS or we call Investor Communications Group. And finally as you look at the drop off in our revenue quarter to quarter, which I just described to you which is driven primarily by the non-recurring internal growth, we expect this to continue and we know that at least $10 million that won't repeat from the last year. So, why the range of a negative 1.5 to 2.5? Two reasons. Postage is very unpredictable in our fourth quarter and we've seen big ups and downs year-over-year in our past and stock record growth which has been negative year-to-date by 2 points has more recently shown improvement so the message is that it's tough to tie down with precision our fourth quarter. With respect to pre-tax margins, before new debt interest of about $10 million in that quarter, and one-time restructuring of $9 million, our forecast is to be between 23.2 and 24.3%.

Let's move on to page ten, our financial guidance. With respect to revenue growth, we remain confident in our forecast of 7 to 9% for the year, although revenue growth year-to-date is above 12% as we just discussed, the fourth quarter has upside and downside therefore the 7 to 9% for the year we believe is appropriate. We're forecasting earnings before interest and taxes, margins of 15.9% to 16.4%. We're also forecasting interest payments as I mentioned of 10, effective tax rate of approximately 40%, and shares outstanding basic and fully diluted of approximately 139 million. And GAAP has us showing both about the same given the rules around that spin. Finally, earnings per share is expected to be $1.42 to $1.49 before one-time, interest or approximately 9% to 15% growth, and after the one-time and the debt interest, about 1.5% to 6.2% growth or $1.32 to $1.38 per share. The message here is that from our road show a month ago, we don't see any reason to change any of our guidance for FY '07 and all of this is in the appendix to the press release. At this point I'll turn the meeting back over to Rich Daly.

Thanks, Dan. On page 11 there are a few key topics that I wanted to provide an update on before we open it up to the Q&A. Let's start with the SEC notice and access rule. Most of you are already aware that the proxy busy season for this year which concludes in our fourth quarter will not be impacted by notice and access since the new rules do not go in effect until July 1. Participation by corporate issuers and notice in access model is voluntary, and it will only apply to issues with meeting dates on or after August 10, of 2007. We are getting a fair amount of inquiries from issuers about how the new rule will work, but no significant indications one way or another as to how many companies will actually participate in the new rule. Now, related to this, there's a New York Stock Exchange proxy working group that are reviewing broker reimbursement rates but right now it appears that they are heading in the direction of making no immediate changes. Now, let me emphasize they are still in active discussions and this could change. What we're going to do is we'll be working with our broker clients and their primary trade association (Inaudible), to discuss the fee structure applicable for issuers to adopt noticing access, but again, this is still a very fluid situation.

As for the potential financial impact on Broadridge from Notice and Access, we anticipate no material impact up or down on our profits. Notice and Access revenue related to pass through postage distribution fees would decline; however, we believe any lost profits related to pass through revenues would potentially be offset by the profits related to new services required by us to support Notice and Access. Let me move on.

The next topic I'll give you a brief update on is industry consolidation. What I want to do right now is take this opportunity to frame how consolidation affects Broadridge. If our client is acquiring a non-Broadridge client, this is normally a good thing. If our client is acquiring another Broadridge client, it's not normally material but it normally allows the consolidated client to gain additional pricing scale benefits. If our client is acquired by a non-Broadridge client, it becomes more complicated and the final decision depends upon a variety of strategic and economic factors which could include the eventual loss of all securities processing revenues from this client. Now, our goal is to become so low positioned that we consistently remain the platform of choice even when our client is the acquired company.

Let me take a minute now to provide an update regarding some activities pending Board review and approval. During the road show, we talked about being a chicken and egg scenario with regard to the Board meeting to approve things like options and dividends, and since we were not a legal entity until this spin, they could not make decisions because the Board technically did not exist. Well, now that Board does exist, and we have been meeting about a variety of things including a dividend policy and options, but we still do not have definitive dates for approval of these items that I can share with you right now; however, I still expect our Board to approve a dividend policy after they've had adequate time to review management 's analysis and reach a well thought out policy conclusion.

Now let's take a look at our fiscal year to date sales performance. We've closed about $80 million in year-to-date sales. These sales were slightly more non-recurring than recurring. Sales in aggregate are in line with our expectations. Now, we would always prefer more recurring sales given the long term benefit recurring sales per buy. Overall I'm satisfied with our sales results and I do feel good about our pipeline.

I want to summarize on page 12 now. Let me wrap it up with a few things before we go on to the Q&A. Right from this slide here, we had a solid Q3 and we had a solid nine month year-to-date results. There are no surprises expected in our fourth quarter relative to the prior guidance as Dan pointed out. We are tracking to the fiscal 2007 earnings guidance communicated at the time of the spinoff. Going forward, we are working through our fiscal '08 operating plan. There are no changes in our directional '08 view for revenue growth right now. That revenue growth we still believe is going to be 0 to 3% with a decrease of 5to 10% for operating income.

As I think about that decrease in '08, let me share a perspective. I mentioned to many of you during our road show that I've only participated in one down year in my career, up to this point in time, and now '08 looks like it will be my second one. We certainly don't like this. And we certainly will do everything we can to manage the business to avoid this whenever possible. In conclusion, I shared with those of you who I met during the road show that I really do feel good about our prospects. Let me also share with you that after six weeks as an independent company, I'm feeling even better. It's now almost five to nine. We are planning to conclude at 9:30 so that gives us a little over 35 minutes for Q&A. Let me turn it back over to the Operator and let's start the Q&A.

Thank you, sir. (OPERATOR INSTRUCTIONS) Our first question will come from the line of Tien-tsin Huang with JPMorgan.

Great. Thanks, good morning and thanks for the slides and all the details. It's very helpful. I guess, Rich, maybe if you could actually comment on the pipeline across the three businesses to start, I'm curious to hear how it's building and are there any large deals out there that we should be thinking about.

Sure. Let me first comment that the pipeline overall across all the business segments is in line with our expectations and during the road show, I shared with people that it was particularly the opportunities around our outsourcing opportunity that I was particularly pleased with because that was a new product. We were the only entity offering outsourcing, and for those of you who aren't familiar with that, outsourcing is something that a self-clearing firm can now not only give up the system requirements of maintaining that but they can give up the people behind the system and still remain self-clearing, meaning that everything would be in their name, all communications to customers would go directly from them, but they would still have the opportunity to maintain all of their own financing activities, call it margins, and stock loan.

So, it's business as usual and virtually all our businesses but the markets reaction at least in terms of interest in outsourcing is high. Now, outsourcing is a material transaction for the entity deciding to do it, we have had some initial successes, but as I also pointed out during the road show, we kind of view these sales as being lumpy. They are very difficult to predict but the momentum out there in terms of people's interest is higher than I could have possibly expected at this point in time.

Okay, great. And any update on the timing to I guess reach breakeven in that outsourcing business?

Yes, basically by the way, the business now as we move -- and this is Dan Sheldon speaking. As we move into FY 08 is at a breakeven point. So basically the way to think about it is outsourcing as we bring in the deal, we shared with people to be thinking of in the 20% range for the additional dollars brought in for outsourcing.

Okay, and Dan also, is there any -- do you have, actually plan on publishing the historical quarterly information including the new transfer pricing? It would be helpful for us as we model out the quarterly estimates for fiscal '08 to have the actual comparisons.

Absolutely. That's a very good point. Anything that will help you guys. We do plan on putting that out there. Just for the timing we're in right now, we didn't have a chance to put that out there but that's a very good point and we will basically adjust pro forma, that information so it will be on our website.

We'll be looking for that and then last question from my side, clearing and outsourcing, sounds like new business drove most of the growth. Curious when did most of this new business get boarded or converted, I'm trying to understand where this new business will anniversary or cycle through in terms of growth. Thanks.

Okay, let me separate out clearing and outsourcing. The clearing transactions generally convert on a relatively timely basis. Outsourcing takes a little bit longer than that, but all of the transactions except maybe one or two of the clearing transactions are boarded on right now, and are part of our revenue streams right now.

I'm just jumping back on, so again, just thinking about if we assign no new business today, I'm trying to understand when the internal growth will look like the reported growth given that it sounds like most of the growth that we saw this quarter was the result of new business coming aboard? Does my question make sense?

Yes, the question makes sense so when you think about it, by the way, most of the outsourcing revenue came in at the beginning of this year, so thinking more or less we got basically three quarters and the clearing, basically the sales that we basically look at of about $8 million basically came in ratably over the period so half of that will continue. That's the easiest way or the best perspective to give you at this time and by the way, given the size of as Rich mentioned any large deal whether it be outsourcing or especially anything that would go into our securities processing group, we would always share with you guys just what you asked for, how would that lay in.

Right and what this all ties out to is why that we made the comment about not only fiscal '07 but the initial directional views we gave you about '08 as well.

Got you. Thank you, very helpful, thanks.

Our next question will come from the line of Peter Heckmann, with A.G. Edwards.

Good morning. This is [Craig Richard] in for Pete. First off, a few housekeeping modeling questions. Customer reimbursables in the quarter, could you give that number?

You talking about basically our distribution fees?

Correct.

Yes, okay. So for the quarter the distribution fees were $183 million, and year-to-date $496 million.

183 in the quarter?

Yes. 183 in the quarter and 496 for the year-to-date.

Okay. Great, and Dan, could you go back to, I believe it was slide four when you talked about the two client losses? You indicated or confirmed the securities processing, clearing, and outsourcing client, that revenue will stay on through the end of the fiscal year?

Well, because of contractual agreements yes, so let me put it in perspective for you, okay? So if you're thinking about the impact to our investor communications, thinking of basically in the third quarter we had about $4 million of revenue and $1 million of profit. And basically, in our fourth quarter, we'll see another $11 million of revenue and about $3 million of profit disappearing. Then going into next year the way to think about that same group is that you'll basically have then $69 million worth of revenue and the remainder of the profit that we had talked about of $11 million so about $7 million going into FY '08 so 69 and 11.

Okay.

Okay? So then thinking about basically then our other client which breaks in between our securities processing and also our outsourcing and clearing group, be thinking about basically for next year that clearing and outsourcing will lose $11 million and 2 million on the bottom line and basically, the securities processing group will lose 28 million and 25 million on the bottom line. And by the way I misspoke. That piece I gave you, 69 million, that client for the investor communications has a grand total of $44 million of revenue of which I just mentioned to you that basically $15 million is disappearing this year. Okay?

Great. And then--.

So it's not 69. It's 44.

And then you contemplated in your '08 guidance, can you talk about expected adoption rates from companies for notice in access of electronic distribution proxies?

Craig, it's very difficult to predict. Now, we have a salesforce that interfaces with the issue of community and the feedback that I've gotten from them is that there's lots of interest in knowing what it is but recognizing that it will invariably result in lower shareholder participation by shifting from a pure push model to a push-pull model. Corporations are looking at their needs and their need for investor participation and it is not just a black and white, where we save money and everything else is the same, so we, again, there's lots of interest in terms of what it is. There's lots of interest in how we'll help them manage through it. There's interest in the new services that we would provide, help them manage through it but this is a decision that really has more to do with the companies need to have shareholders participate and so there's only a handful of companies at this point in time that have given us a definite view that they intend to go forward.

Okay, thank you.

Our next question comes from [Rod Daughtery] with Citadel.

Actually, it's [Darius Brown]. A couple of questions gentlemen. First is on the options. I was under the impression it priced the first day of regular way trading is that not correct?

That's correct.

Okay, so we don't know the size of the plan yet. We do know the price?

Well, the options that were priced on first trade first pick were the converted options from ADP, so all of my ADP options and all of Broadridge Associates ADP options converted into Broadridge options, first trade, first tick.

Okay.

On a stated formula that was included in the Form 10, the only open item was the price and again, first trade first pick.

Got it. Next question is in the clearing business, it looks like it got close to profitability this quarter. Do you expect that business to be profitable next year, and I guess as it relates to the loss of a certain clearing client, would it have been profitable X that?

This is Dan Sheldon speaking. Your question first was do we expect to be profitable next year. The impact from the lost client, by the way is 2 million to the bottom line as we mentioned and 11 to the top so yes we do expect to be profitable next year. Not quite sure I understood the second part of your question.

Well, I guess my question was, it was saying that would it have been profitable X loss of this client and you're telling me that even with the loss of this client you expect to be profitable?

Yes, in FY '08 that is correct statement.

And then the 80 million of sales, does that include the CIBC contract that was signed in April?

Yes, it does.

That's a clearing customer or a securities processing customer?

That was an outsourcing transaction. Let me put it in perspective that year-to-date, we have not had what we call any elephants which are deals over 5 million, and that includes that transaction as well, we still have not had any elephants year-to-date.

Okay, great. Thank you.

Thank you.

Our next question comes from the line of Charlie Murphy with Morgan Stanley.

Thanks. Rich and Dan, could you give us an insight into what the revenue and pre-tax profit per item BR generates on an electronic proxy versus a paper proxy?

And you said per item and then we didn't hear clearly the next thing you said, Charlie.

For an electronically distributed proxy versus a traditionally paper delivered proxy, what is the revenue per item in the pre-tax profit per item on those two?

I think the best way, Charlie, we don't really go into that piece of it. The best way I can share with you is for instance when you look at our suppression rate, basically in this business right now if you look at where we are year-to-date, our I'll call basically for this period, our suppression rate for the proxy business, year-to-date are basically at 39%, and when you look over last year, it basically was 35.9% and the way to think about that and this is the way we described it before is for each one of those percentage points that we basically go up, it's basically gaining us about 50 basis points, about $500,000 for the bottom line, and that's the way we talked about it as well as we lose on the postage revenue about $2 million.

Okay, great.

That described it in the past.

That's great.

Charlie, the thing that I think you're getting to is that we are actively looking to convert paper proxies into true electronic proxies, which require no paper, it's not a Notice and Access model, it's a pure eDelivery model and the margins are slightly better than the hard copy and that offsets the margins we earn on the distribution fees and the hard copy proxies by the efficiencies we add to the distribution process.

Great. Thanks, and just quickly I was wondering what free cash flow was in the quarter versus last year.

Basically, the net operating income. As we said before, the way to look at it is the changes in our working capital basically paralleled and they have, the change in our revenue and then we basically have the CapEx equalling the amount that comes through as far as the depreciation and amortization that we've -- in the expense.

Okay, thanks.

Our next question comes from the line of [Stefan Bituk] with [Pike Place] Capital.

Yes, hi, good morning. A couple questions. First off, the NYSE working group has, I think proposed changing its Rule 452 such that a regular annual meeting where directors are elected actually is no longer, I forget what the term they call it like routine or standard, which means the brokers wouldn't be able to vote the shares on behalf of the shareholder, so I'm just wondering if that were changed, does that increase the amount of distributions that you're going to have to make if shareholders haven't voted and then the meeting may not reach a quorum?

That's in essence correct. We've filed comment letters to the SEC on the NYSE proposed rule as well as Notice and Access and we have extensive expertise in understanding that when you make changes to the process, it can have consequences beyond the specific change, so if the broker vote does go away as originally proposed by the NYSE, this is the broker vote going away for directors, effective January 1, of '08, we absolutely believe that that will have a meaningful impact on the number of corporations that elect to use Notice and Access, because that would reduce the amount of votes that they get for the directors from the retail segment and those votes are generally whether they are actually cast or issued by the broker vote, those votes are generally very heavily in favor of management's recommendations, so you're right in thinking that it could cause more activity if it was to go through.

As of this point in time, the SEC has not responded to the New York Stock Exchange's petition that they filed to eliminate the broker vote for directors though. So we'll see what happens.

Okay, so if the NYSE does indeed propose it then the SEC has to actually confirm that position?

The NYSE has indeed proposed it.

Okay.

And the SEC at this point in time has not formally reacted to that proposal.

Okay. Terrific. And then secondly, just on the, I know on the road show you talked about this work flow product that you were, you had been thinking of working on. Is that something that you're going forward on and what's the timing on that?

Yes, we are going forward on it. We actually have a product launch in Midtown this Thursday, and so we believe that we are uniquely positioned to not only help our clients but the industry overall, on what we believe will be the first brokerage only focused work flow product.

Okay, and that gets sold, you're going to sell that initially to your existing client base or is that something that you think is going to attract new clients.

Well, what we've done is we've designed it and developed it on an independent or agnostic basis so in our clearing business, it's really a benefit having that business because we're actually designing it for ourselves to make that business more efficient. We've designed it in a way that it can interface independently with brokerage systems that are not on our platform as well. So, we're hoping to leverage it across the entire brokerage client base.

Great. Okay, thank you very much.

Our next question comes from the line of [Andrew Bacos] with Full Value Advisors.

Good morning, gentlemen. Question I have is just generally with regards to the three business segments. Are there any material synergies between the segments, particularly with respect to the clearing and outsourcing business?

Andrew, there is terrific synergy between the segments. The business that we've been in the longest is our hosted application business, and that is a very efficient, very feature rich platform that I strongly believe is the most efficient securities processing platform in the industry. When we went into the clearing business, we were able to leverage that same hosted platform and so we get natural efficiencies and cost advantage by leveraging a system that we maintain and run already.

The key reason why we went into the clearing business was because we were uniquely positioned to create this new space called outsourcing and we're the only platform where we have a hosted application and a clearing business running off the same platform. That enabled us to use that multi-entity platform to go into the outsourcing business where we cannot only provide the system but through our clearing unit, provide the people behind the system, and again as I mentioned, the interest in that product we're very very pleased with the interest but these are big decisions and until they're closed, until deals are closed, we don't get the benefit, but again, we are uniquely leveraging these platforms beyond what anyone else in the industry has been able to do.

Okay, thank you.

Our next question comes from the line of [Josh Hector] with Captive Partners.

I'm just trying to follow on, Marvin, when we last talked, what I can't understand is if the aggregate number of mailings and pieces of stuff that you guys are sending out may go down, why won't suppression go away? I mean, suppression is essentially the computerized holding back to save money and it's gotten terrific cost margin for you guys in the sense of net profits. I wondered why over time won't suppression go to zero and therefore have a material impact on your profitability?

So when you say suppression go to zero, what you're really saying is suppression go to 100% but the revenue from suppression go to zero. Is that right, Josh?

I think.

Okay, so let me give you a view of the way we look at the communications business. There are about 800 financial institutions that hold a majority of assets in this country. Behind those 800 institutions, the round number is 90 plus million accounts. Those 90 plus million accounts need to be coordinated with the 13,000 active public companies in North America. We're the plumbing that links all this together.

Now, before we had suppression activity, the size of our system which is now over 8 million lines of code, over 400,000 function points, was probably half that size, so we've invested very very heavily in technology to make this entire process work. Not only do we invest in the technology platform but in order to enable people to take advantage of it, when we went to our clients and said, you really need to help us get more e-mail addresses. You really need to help us slice and dice your accounts better, many times they said--That couldn't be a strategic priority for them, so we took the responsibility for maintaining all the database activities, for making those accounts work in an e-environment and over half the accounts that we processed, we do something to make the process work primarily making the process more efficient, primarily eliminating the need to mail.

Rich, can I just--?

I guess what I'm trying to say, Josh, is that we've invested very very heavily in the technology and we're saving people by eliminating these accounts over two times our fees and the savings we create for them. So we think we got a great value propositions.

That is absolutely 100% true if you're still sending out stuff. So if the number of pieces of paper that are sent out by corporations radically changes, because Notice and Access becomes the model, doesn't it make sense that the suppressing of data, the suppressing of paper and you're paid these terrific fees to do it ultimately will go to zero ? I mean, you're suppressing nothing. That's what I'm trying to figure out is what down the road will--?

Well, okay, and Notice and Access which some people also call e-proxy, I really differ in that there is no e-proxy in Notice and Access, because what's happening in Notice and Access is that instead of sending you the annual report and the notice and proxy statement along with the ballot, we're creating a new form which based on the SEC regulations is going to be more than one piece of paper that the ballot is right now, but it's likely to be a minimum of two pieces of paper that we're going to have to get all of the legal requirements on these forms, and I'm still creating that form and mailing it out to you. Now, the participation rates without question and we filed a long statistical comment letter supporting this will absolutely be less. So the true e-proxy that we've created, not only do we eliminate the need to mail anything, but we create a far higher participation rate all of which leads to more efficiency for the Corporations.

Now, there will likely be dialogues as we've anticipated that with Notice and access, people saying should the fees and rates change? But we bring so much value to the process particularly in terms of the most important thing which is getting people to the quorum participation that they need, we expect to get paid for the value we bring in those areas, although we do expect the model to evolve and we're looking forward to maintaining our leadership position and making this process work for all participants.

Thanks very much.

Our next question comes from the line of Andrew Mies with Corsair.

Thank you. Two questions. First is, what do you anticipate your year-end total debt level to be?

Basically, what I'm expecting right now is take basically the 690 that we basically have and be thinking more in the 50 to $70 million of free cash flow in that fourth quarter to bring that debt down.

Okay, and then there was a comment earlier on the clearing outsourcing on new wins and new business, and I thought I heard that the incremental EBIT margin was at about 20%. Can you just confirm that? That sounds low. I would have anticipated it being higher than that.

The outsourcing piece is what is approximately 20% and when you think about the clearing piece, be thinking of 50 to 60 basis points.

I'm sorry, what did you say on the clearing side?

50 to 60 basis points on new business.

Thanks.

(OPERATOR INSTRUCTIONS) Our next question will come from the line of [Jed Vistorf] with Soapstone Capital.

Hi, good morning. Rich, I don't think I understood your answer to a previous caller and I think that you said that all your ADP options were converted first trade, first pick but you also mentioned that the Board hasn't met and suggested that potentially there could be more options later that were not all ADP options but say New Broadridge options? Maybe you could clarify that?

Sure, Jed. I apologize that I wasn't clear. Let's break this into the components. The component that I spoke to was that as disclosed in the Form 10, all of management's ADP options would be converted to Broadridge options first trade, first pick, and that indeed has taken place. As it relates to options going forward, our new Board and our new Board's comp committee is reviewing the comp structure which we fully expect will include for senior management to include equity components and when they finalize those amounts, those options, we will announce what the policy is and those options will be converted at market at the time that they are granted.

Now, we expect there to be an annual component in senior management's compensation that includes options compensation and our Board is in the process of, with outside advice reviewing and finalizing those numbers and we will share that policy when it's finalized.

And just to follow-up then, so on an annual basis prospectively, of course the Board will be involved in figuring out what the appropriate compensation is for senior management, but do you expect there will be an additional sort of Founders grant or some sort of other spinoff related grant that senior management might receive? Is that on the table or is this just more in terms of what your '08, '09, and 2010 and so forth compensation will look like?

Jed, I don't have a clear answer there in that the Board is looking at the alignment between management and the shareholders, what the best decisions to create alignment going forward are, and -- but I certainly expect there is going to be an annual option compensation component and, but again, the Board has engaged an outside consultant. The comp committee is actively working on this and we expect them to reach conclusions as soon as they responsibly can.

Thank you.

At this time we have no further questions. I will now turn the conference back to Mr. Daly.

All right well, we certainly want to thank you for participating today and we want to thank you for your questions. I am going to conclude by again saying that we're six weeks into this. As any of you met me during the road show, I thought you could see I was sincerely excited about the opportunities we have in front of us. That excitement continues to build for myself and the entire management team and we look forward to many more quarterly updates and other activities with you. Thanks so much and have a great day.

Thank you for participating in today's Broadridge Financial Solutions Incorporated third quarter 2007 earnings conference call. You may now disconnect.